Marketing Ch. 12
Channel Strategies
Conventional distribution channel = consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own profits, perhaps even at the expense of the system as a whole. Vertical marketing system (VMS) = consists of producers, wholesalers, and retailers acting as a unified system. One channel member owns the others, has contracts with them, or wields so much power that they must all cooperate. Vertical marketing systems (VMSs) = provide channel leadership and consist of producers, wholesalers, and retailers acting as a unified system and consist of = - Corporate marketing systems - Contractual marketing systems - Administered marketing systems
Evaluating the Major Alternatives
Economic criteria = a company compares the likely sales, costs, and profitability of different channel alternatives. Control issues = means giving them some control over the marketing of the product, and some intermediaries take more control than others. Adaptive criteria = means the company wants to keep the channel flexible so that it can adapt to environmental changes.
Numbers of Intermediaries
Exclusive distribution = Purposely limit the number of intermediaries handling their products. The producer gives only a limited number of dealers the exclusive right to distribute its products in their territories. Selective distribution = This is the use of more than one, but fewer than all, of the intermediaries who are willing to carry a company's products. Intensive distribution = Ideal for producers of convenience products and common raw materials. It is a strategy in which they stock their products in as many outlets as possible.
Public Policy and Distribution
Exclusive distribution = occurs when the seller allows only certain outlets to carry its products. Exclusive dealing = occurs when the seller requires that these dealers not handle competitors' products. Exclusive territorial = agreements occur when the producer agrees not to sell to other dealers in a given area, or the buyer may agree to sell only in its own territory. Full-line pricing (tying) = occurs when producers of a strong brand sell it to dealers only if the dealers will take some or all of the rest of the line.
Channel Functions
Functions = Some help to complete transactions 1. Information = Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange 2. Promotion = Developing and spreading persuasive communications about an offer 3. Contact = Finding and communicating with prospective buyers 4. Matching = Shaping and fitting the offer to the buyer's needs, including activities such as manufacturing, grading, assembling, and packaging 5. Negotiation = Reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred. Others help to fulfill the completed transactions: 1. Physical distribution = Transporting and storing goods 2. Financing = Acquiring and using funds to cover the costs of the channel work 3. Risk taking = Assuming the risks of carrying out the channel work
Designing International Distribution Channels
In some markets, the distribution system is complex and hard to penetrate, consisting of many layers and large numbers of intermediaries. At the other extreme, distribution systems in developing countries may be scattered, inefficient, or altogether lacking. Sometimes customs or government regulation can greatly restrict how a company distributes products in global markets. - Channel systems can vary from country to country - Must be able to adapt channel strategies to the existing structures within each country
Corporate VMS
Integrates successive stages of production and distribution under single ownership Zara is an example: Zara has control over almost every aspect of the supply chain, from design and production to its own worldwide distribution network. Zara makes 40 percent of its own fabrics and produces more than half of its own clothes, rather than relying on a hodgepodge of slow-moving suppliers. New designs feed into Zara manufacturing centers, which ship finished products directly to Zara stores in 68 countries, saving time, eliminating the need for warehouses, and keeping inventories low. Effective vertical integration makes Zara faster, more flexible, and more efficient than its competitors.
Nature and Importance of Marketing Logistics
Marketing Logistics (physical distribution) = involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet consumer requirements at a profit Marketing logistics involves: - Outbound distribution—moving products from the factory to resellers and consumers. - Inbound distribution—moving products and materials from suppliers to the factory. - Reverse distribution—moving broken, unwanted, or excess products returned by consumers or resellers. Companies today are placing greater emphasis on logistics for several reasons. Companies can gain a powerful competitive advantage by using improved logistics to give customers better service or lower prices. Improved logistics can yield tremendous cost savings to both the company and its customers. The explosion in product variety has created a need for improved logistics management. Improvements in information technology have created opportunities for major gains in distribution efficiency.
Channel Management
Marketing channel management = calls for selecting, managing, and motivating individual channel members and evaluating their performance over time. Selecting Channel Members = When selecting intermediaries, the company should determine what characteristics distinguish the better ones. Managing and Motivating Channel Members = The company must sell not only through the intermediaries but to and with them. Most companies practice strong partner relationship management (PRM) to forge long-term partnerships with channel members. Evaluating Channel Members = The company should recognize and reward intermediaries who are performing well and adding good value for consumers. Those who are performing poorly should be assisted or, as a last resort, replaced. Finally, manufacturers must be sensitive to their dealers.
Multichannel Distribution System (often called hybrid marketing channels)
Occur when a single firm sets up two or more marketing channels to reach one or more customer segments. These systems increase sales and market coverage, they create new opportunities to tailor products and services to specific needs of diverse customer segments. However, these systems are hard to control and prone to conflict. Example--Many major grocers have partnered with Peapod for home delivery of groceries. Many of you may have tried this service.
Channel Design
Setting Channel Objectives = Companies should state their marketing channel objectives in terms of targeted levels of customer service. The company should decide which segments to serve and the best channels to use in regard to: Targeted levels of customer service What segments to serve Best channels to use Minimizing the cost of meeting customer service requirements The company's channel objectives are influenced by the nature of the company, its products, its marketing intermediaries, its competitors, and the environment. A firm should identify the types and number of channel members available to carry out its channel work. Types of intermediaries refers to channel members available to carry out channel work. Examples include the company sales force, manufacturer's agency, and industrial distributors. Types of intermediaries includes = Number of marketing intermediaries Responsibilities of channel members
Upstream, downstream, supply chain, value delivery network, distribution channels
Upstream = From the company is the set of firms that supply the raw materials, components, parts, information, finances, and expertise needed to create a product or service. Downstream = side of the supply chain—on the marketing channels (or distribution channels) that look forward toward the customer. Supply Chain = with the "make and sell" view including the firm's raw materials, productive inputs, and factory capacity. Value Delivery Network = includes the firm's suppliers, distributors, and ultimately customers who partner with each other to improve the performance of the entire system. Distribution Center = a set of interdependent organizations that help make a product or service available for use by the consumer or business user
Logistics functions
Warehousing = A company must decide on how many and what types of warehouses it needs and where they will be located. Storage - warehouses store goods for moderate to long periods. Distribution centers - designed to move goods rather than just store them. They are large and highly automated warehouses designed to receive goods from various plants and suppliers, take orders, fill them efficiently, and deliver goods to customers as quickly as possible. (For example, Wal‑Mart operates a network of 112 huge U.S. distribution centers and another 57 around the globe. A single center, serves the daily needs of 75 to 100 Wal-Mart stores, typically contains some 1 million square feet of space (about 20 football fields) under a single roof) Warehouse Decisions: - How many - What types - Location Inventory Control = Inventory Management Just-in-time logistics systems: Producers and retailers carry only small inventories of parts or merchandise, often only enough for a few days of operations. With such systems, producers and retailers carry only small inventories of parts or merchandise, often only enough for a few days of operations. New stock arrives exactly when needed, rather than being stored in inventory until being used. Just-in-time systems require accurate forecasting along with fast, frequent, and flexible delivery so that new supplies will be available when needed. Firms store goods for many reasons, such as enabling production to meet seasonal demand and creating economies in ordering. Radio-frequency identification (RFID) = which lets them tag products with tiny chips containing information about the item's content, origin, and destination. Transportation Modes = Trucks -have increased their share of transportation steadily and now account for nearly 35 percent of total cargo ton-miles (more than 60 percent of actual tonnage). Trucks are highly flexible in their routing and time schedules, and they can usually offer faster service than railroads. They are efficient for short hauls of high value merchandise. Railroads - account for 31 percent of total cargo ton-miles moved. They are one of the most cost effective modes for shipping large amounts of bulk products—coal, sand, minerals, and farm and forest products—over long distances. Water - carriers which account for 11 percent of cargo ton-miles, transport large amounts of goods by ships and barges on U.S. coastal and inland waterways. Although the cost of water transportation is very low for shipping bulky, low value, nonperishable products, it is the slowest mode and may be affected by the weather. Pipelines - which account for 16 percent of cargo ton-miles, are a specialized means of shipping petroleum, natural gas, and chemicals from sources to markets. Air carriers transport less than 5 percent of the nation's goods. Airfreight rates are much higher than rail or truck rates. The Internet - carries digital products from producer to customer via satellite, cable, or phone wire. Many companies use intermodal transportation, which combines two or more modes of transportation: - Piggyback uses rail and truck - Fishyback uses water and truck - Airtruck uses air and truck Information Management = Logistics information management - is the management of the flow of information, including customer orders, billing, inventory levels, and customer data. Electronic data interchange (EDI) - is the computerized exchange of data between organizations. Vendor-managed inventory (VMI) systems, or continuous inventory -replenishment systems, allow the real-time customer sharing of data on sales and current inventory levels with the supplier. The supplier then takes full responsibility for managing inventories and deliveries. Integrated logistics management - is the recognition that providing customer service and trimming distribution costs requires teamwork internally and externally.
Horizontal Marketing System
When two or more companies at one level join together to follow a new marketing opportunity. Companies combine financial, production, or marketing resources to accomplish more than any one company could alone. Can you think of an example where two companies join for a horizontal marketing system. You might have thought of the example that McDonald's is in Wal-Mart or their gas station also has a coffee franchise.
Conventional Distribution Systems
consist of one or more independent producers, wholesalers, and retailers. Each seeks to maximize its own profits, and there is little control over the other members and no formal means for assigning roles and resolving conflict These Intermediaries = OFFER PRODUCERS GREATER EFFICIENCY IN MAKING GOODS AVAILABLE TO TARGET MARKETS. Through their contacts, experience, specialization, and scale of operations, intermediaries usually offer the firm more than it can achieve on its own. Intermediaries = REDUCE NUMBER OF TRANSACTIONS, offer producers greater efficiency in making goods available to target markets. Through their contacts, experience, specialization, and scale of operations, intermediaries usually offer the firm more than it can achieve on its own. From an economic view, intermediaries transform the assortment of products into assortments wanted by consumers. Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who would use them. The text gives the example of soap: Unilever makes millions of bars of Lever 2000 hand soap each day, but you want to buy only a few bars at a time. So big food, drug, and discount retailers, such as Kroger, Walgreens, and Wal-Mart, buy Lever 2000 by the truckload and stock it on their store's shelves. In turn, you can buy a single bar of Lever 2000, along with a shopping cart full of small quantities of toothpaste, shampoo, and other related products as you need them.
Marketing Channel
consists of firms that have partnered for their common good with each member playing a specialized role. Goodyear is vertically integrated with its retail chain. Channel conflict = refers to disagreement over goals, roles, and rewards by channel members. Horizontal conflict = conflict among members at the same channel level whereas Vertical conflict = conflict between different levels of the same channel.
Contractual VMS
consists of independent firms at different levels of production and distribution who join together through contracts to obtain more economies or sales impact than each could achieve alone. The most common form is the franchise organizationThere are three types of franchises. 1. Manufacturer sponsored retailer franchise system—for example, Ford and its network of independent franchised dealers. 2. Manufacturer sponsored wholesaler franchise system—Coca Cola licenses bottlers (wholesalers) in various markets who buy Coca-Cola syrup and then bottle and sell the finished product to retailers in local markets. 3. Service firm sponsored retailer franchise system—examples are found in the auto-rental business (Avis), the fast food service business (McDonald's), and the motel business (Ramada Inn). Every year entrepreneur.com lists the top franchises. The top 10 Franchises for 2008 were, in order: 7-Eleven Inc. Subway Dunkin' Donuts Pizza Hut McDonald's Sonic Drive In Restaurants KFC Corp.
Administered VMS
leadership is assumed not through common ownership or contractual ties but through the size and power of one or a few dominant channel members.
Disintermediation
occurs when product or service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones You are urged to consider the advantages and challenges of multichannel systems: Advantages Increased sales and market coverage New opportunities to tailor products and services to specific needs of diverse customer segments Challenges Hard to control Create channel conflict Consider eBay. No doubt you are already familiar with eBay. How might this online organization have displaced other channels like classified ads, yard sales, non-virtual auctions, etc.?
Third Party Logistics
the outsourcing of logistics functions to third-party logistics providers (3PLs)
Supply Chain Management
the process of managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers
